Gate 2: rejected or waiting?

Where are we now?

The week has arrived – as confirmed by NESO's updated timeline, transmission and distribution customers will start to hear about the outcome of their applications as part of the Gate 2 to Whole Queue (GT2WQ) process over the next few days.

NESO has confirmed that the customer notifications will include the following for each stage and technology:

• Gate 1 or Gate 2;
• Phase 1 (pre-2030) or Phase 2 (post-2030);
• Transmission entry capacity;
• Strategic alignment category and confirmation of protected status; and
• Status of the detailed checks (as recently confirmed by NESO, some connections will not have undergone all detailed checks by the time of the customer notifications, and these will therefore still be subject to the detailed checks).

As previously communicated, these notifications will not confirm the connection date, whether advancement has been granted, the point of connection or the updated connection costs, all of which are to follow in the Gate 2 offers where relevant.

What could go wrong?

Although the expectation is that customers will start hearing next week, the process so far has been beset with delays and it remains to be seen whether this will continue. If the deadlines are missed, it seems unlikely there will be any remedy available for developers struggling with project viability and investor confidence.

We have also seen a substantial number of mistakes and system problems with the G2TWQ process so far, with developers experiencing a number of technical problems using the portal as well as errors made by NESO in the implementation of its own guidance. NESO have said they will use 'reasonable endeavours' to check 100% of Gate 2 criteria, but it is currently unclear what exactly that means.

What happens if your application is rejected?

If the Gate 2 criteria has not been met NESO must give 'substantial reasons why', so the first thing to check upon receiving your offer is the reasoning given.

So, if you are not happy with the decision, what remedies do you have?

Negotiation and Engagement

Taking into account the limitations of the various other routes for dispute, raising issues with NESO early and keeping an open dialogue is likely to be the best option available. We have been supporting clients to have these dialogues and have noted that NESO is prepared to engage with developers where there are issues.

As to DNO decisions, if negotiation is not successful then developers will have to move fast to get into complaints processes. Ofgem has highlighted that the DNOs must have serious and quick processes in place.

'Other Disputes' under the CUSC

The Gate 2 Readiness Methodology is keen to point to this route for resolution of disputes with NESO – as amended the CUSC now provides for arbitration under LCIA rules for issues with the Gate 2 process. It is evident that there is an expectation this will be used – the change to LCIA rules follows years of the arbitration provisions pointing to an arbitration body that was not used. There is therefore a disputes process in place to be used if it looks like there is evidence that NESO has not followed its own guidance or has missed things.

However, it is not yet clear how the timings or remedies might work. If a project has been refused a place in the queue, it is difficult to see how an arbitration decision could easily put the project back in the queue, which will have already been formed. All indications from NESO have been clear that such a remedy will not work. An injunction or expedited claim to force the issue might be possible but would be attempting to break new ground. It also seems unlikely that this arbitration route would result in financial compensation for loss of revenue or investment given the limitations of liability incorporated in all the relevant contracts. It may be that this route can identify issues in the process, but it is not yet clear how that would help a developer who has suffered a problem during the process.

Misrepresentation/Tort

There are theoretically other options under tort law or misrepresentation if NESO have, for example, made clear representations to a grid customer that subsequently turns out to be false. However, these would be extremely challenging claims (if possible at all) and for any claim to have a realistic prospect of success it would have to have specific facts and evidence.

Ofgem Determination/Judicial Review

Ultimately (and once all other routes are exhausted) developers could seek an Ofgem determination of an issue. There is a whole new process being put into place to specify how such G2TWQ determinations should run. However, again this will not lead to financial redress and even on an expedited basis will not be fast enough to achieve many developers' potential aims. The remedy here would more likely be requiring the DNO or NESO to improve their processes. After an Ofgem determination, if still dissatisfied, the route of 'appeal' would be to Judicial Review. 

Our Thoughts

The current situation is unclear and the process untested. This means that at this stage we can only speculate on how the process is going to play out over the next few months once notifications start coming through. The reality is that until someone brings a challenge, we don't know for certain which course will produce the best results. And naturally, as with any dispute, the outcome will turn on the specific facts of each individual case.

We are regularly advising clients on all aspects of the G2TWQ process. If you have any questions, please do not hesitate to get in contact with a member of our team.